2024 (9) TMI 731 - AT - Income Tax

ITAT deletes section 40(a)(ia) disallowance for direct costs, removes arbitrary 20% travelling expense disallowance, remands TDS verification issues

V.K. Manimaran Versus The Deputy Commissioner of Income Tax, Media Circle I, Chennai.

ITAT Chennai allowed the appeal partially. The tribunal deleted disallowance u/s 40(a)(ia) for direct costs, citing Ansal Land Mark Township judgment that ... Disallowance u/s 40(a)(ia) - assessee submitted that the expenditure is in nature of direct cost not covered by the provisions of Section 40(a)(ia) - HELD THAT:- As correctly submitted by Assessee payment towards expenditure incurred is also made to a person who is assessable to tax and as relied upon the judgement of Ansal Land Mark Township (P) Ltd .[2015 (9) TMI 79 - DELHI HIGH COURT] that the second proviso to section 40(a)(ia) of the Act is declaratory and curative in nature and should be given retrospective effect from 01.04.2005. Thus, we delete the addition on account of disallowance u/s. 40(a)(ia) of the Act. Disallowance of Travelling expenses payment to Music Party and service charges and Production expenses - AO has disallowed 20% of the travelling expenses - HELD THAT:- We find that 20% disallowance is arbitrary. As per the Indian Stamps Act, 1899, a receipt has been defined in Section 2 (23) and is made chargeable in accordance with Article 53 Schedule 1 of the Act. According to Article 53 Schedule 1 of the Indian Stamps Act, 1899, a receipt for any money, the amount of which exceeds Rs. 5000/ is chargeable with stamp duty of Rs. 1/ and as per Section 11 of the Act and Rule 16 of Indian Stamp Rules, 1925, such a receipt is to be stamped with a adhesive stamp. In this case CIT(A) has not pointed out which receipts are above Rs. 5,000/-. Similarly, without inquiry CIT(A) cannot say the receipts are self-made. Hence, we delete the addition on account of travelling expenses. Disallowance under Sub-contract payment - HELD THAT:- We find that this issue is not properly verified by the both authorities below hence, we remand back this issue to ld.AO to verify TDS and evidence and if found true the ld. Ld. Assessing Officer will allow the same. Disallowance u/s 40(a)(ia) - HELD THAT:- Appellant stated that he has produced necessary evidences to confirm the TDS were deducted and paid before the due dates for filing return of income alongwith written submissions on 27.11.2012. In the light of aforestated submissions we remand back this issue to ld.AO to verify TDS and whether paid before due date and if found true by the AO, he will allow the same. Credit of TDS and Interest u/s 234B are consequential in nature and direct the AO to recomputed the income a fresh after considering credit of TDS and Interest u/s 243B as per law. Issues:1. Disallowance u/s 40(a)(ia) amounting to Rs. 2,00,000/-2. Disallowance of Travelling expenses payment to Music Party and service charges and Production expenses amounting to Rs. 4,01,682/-3. Disallowance under Sub-contract payment to Mr. Muthukrishnan and Mr. Ganapathy4. Disallowance u/s. 40(a)(ia) amounting to Rs. 4,05,500/-5. Credit for TDS amounting to Rs. 8,03,369/-Analysis:1. Disallowance u/s 40(a)(ia) amounting to Rs. 2,00,000/-:The assessee contended that the expenditure was a direct cost not covered by Section 40(a)(ia) of the Act and the payment was made to a taxable entity. Citing a judgment, the assessee argued for retrospective effect of the second proviso to Section 40(a)(ia). The tribunal agreed with the assessee, following the Delhi High Court's judgment, and deleted the disallowance.2. Disallowance of Travelling expenses, Music Party expenses, Service charges, and Production expenses amounting to Rs. 4,01,682/-:The tribunal found the 20% disallowance of travelling expenses arbitrary. It highlighted the stamp duty requirements for receipts exceeding Rs. 5000 and ruled that the disallowance lacked proper verification. Consequently, the tribunal deleted the disallowance of Rs. 4,01,682 on travelling expenses.3. Disallowance under Sub-contract payment of Rs. 7,00,000/- and Rs. 5,00,000/-:The tribunal remanded this issue back to the Assessing Officer for further verification as the evidence provided by the assessee regarding TDS and payments was not adequately examined by the lower authorities.4. Disallowance u/s 40(a)(ia) amounting to Rs. 4,05,500/-:The tribunal remanded this issue to the Assessing Officer for verification of TDS deductions and payment timelines based on the evidence provided by the appellant. If found compliant, the disallowance of Rs. 4,05,500 was directed to be reversed.5. Credit for TDS amounting to Rs. 8,03,369/-:The tribunal directed the Assessing Officer to recalculate the income after factoring in the credit for TDS and interest under section 234B, considering them as per law. The appeal of the assessee was partly allowed in the specified terms.This detailed analysis covers the key issues raised in the judgment, highlighting the arguments presented, the tribunal's reasoning, and the final decisions made on each issue.